Ask an LA Cannabis Attorney: A Guide to the City’s New Licensing Regulations

With Los Angeles on the verge of rolling out new licensing for marijuana businesses, many businesses, both preexisting and new, are wondering what the City’s procedure will be. The plethora of meetings and details surrounding the subject might seem daunting, especially since the City has not specified or solidified many aspects of the program. With the January deadline closing in, the City is expected to resolve these discrepancies as clearly as possible before 2018.

So what do we know about cannabis licensing? Right now, what we have to go on is the Draft Requirements for Commercial Cannabis Activity published on September 22nd, as well as the Cannabis Social Equity Report published on October 18th. Additionally, a motion on the subject was released on October 31st. Although these are all drafts and have not yet been approved, this blog post will attempt to clarify what we know so far.

The City has rolled out three different processing phases, which treat existing and new marijuana business applicants differently:

Phase 1: Proposition M Priority Licensing (Existing Retail Only)

Applicants for Proposition M Priority Processing can only apply for Retailer Commercial Cannabis Activity (including delivery.) This may include on-site cultivation, as allowed by Prop D. Once applications become available, any business that wants to apply for Prop M Priority Processing must apply within 60 days of when the application period is opened.

Each Prop M Priority Processing candidate will receive a provisional license once the department has approved its eligibility. If it is not eligible, it must cease all business and reapply under the general processing phase. If it is eligible, then the business will receive a provisional license, granting it limited immunity to operate until its full license is approved or denied by the Commission. In order to receive a permanent license, a Prop M Priority candidate must be approved and provide financial statements proving the business is clear of any tax obligations.

The motion passed on October 31st provides a path for priority licensing for “All applicants that were conducting non-retail Businesses in the City of Los Angeles prior to January 1, 2016″ and meet various other requirements, including qualifying for the Social Equity Program.

Businesses have 15 business days to apply for priority after the applications become available. Businesses must prove that they provided product to Prop D compliant dispensaries and were in business before January 1, 2016. Moreover, all taxes should be paid.

What is the social equity program? As an existing business, there is only one way to enter the Social Equity program, and that is as a “Tier 4 Applicant.” The Social Equity Analysis from October 18th details the following ways in which a Tier 4 Applicant would potential take part in the program:

Tier 4 applicants would potentially include market-rate applicants that provide space, capital or other means of support to a Program participant and those who do not have sufficient floor space or eligible zoning to provide on-site support to a Program partner under the incubator partner program. In lieu of a direct incubator program partnership with a Program, potential Tier 4 applicants could provide business mentoring, training workshops, other non-financial contributions to Program applicants or make direct financial contributions to the Community Reinvestment or Industry Ownership Funds.

In other words, Tier 4 applicants under the Social Equity program must either provide space, capital, or time in order to benefit from priority processing. This phase is perhaps the City’s attempt to incentivize existing businesses to partake in the Social Equity program.

Phase 2: Social Equity Program Processing (New Businesses – After January 2016)

For an existing business with an operation that isn’t older than January 2016, it is also possible to apply for the Social Equity program. However, this does not necessarily include a provisional license. The report does not make clear whether or not existing retail businesses after January 2016 would be eligible for the program. Moreover, membership in the program is at the “discretion of the Executive Director of the Department of Cannabis Regulation and the Cannabis Regulation Commission. “

Phase 3: General Processing (New Businesses – After January 2016)

Finally, there is the General Processing phase. This is the phase in which all business who do not qualify for the other phases will apply. The City has not released information on this processing. Furthermore, there are no provisional licenses or limited immunity available for these types of applicants. That means that if you are a business operating now and do not qualify under Prop M or Social Equity, you must shut down operation until all licenses have been either approved or denied.

It is an exciting time for California and for the City of Los Angeles. As the January deadline inches closer and closer, it is important to keep track of all new drafts and measures adopted by the City in regards to the application process. For more information on LA cannabis laws, check our FAQ or contact our cannabis attorneys at info@margolinlawrence.com.